More efficient rent-seeking — A Münchhausen solution

Abstract

In the by now standard Tullock model of rent-seeking (Tullock, 1980) fulfillment of the rent-dissipation hypothesis advanced by Tullock (1967) and Posner (1975) is rather the exception than the rule. Using a game-theoretic model, Tullock showed that in non-cooperative Cournot-Nash equilibrium the extent of rent-dissipation crucially depends on the (scale) returns to individual rent-seeking expenditures. His seminal work, in particular the ‘intellectual mire’ (Tullock, 1980) presented by increasing returns to such expenditure (which may lead to non-existence of Cournot-Nash equilibrium) has subsequently attracted considerable attention (see, e g, Hillman and Katz, 1984; Higgins, Shughart and Tollison, 1985; Corcoran and Karels, 1985; Michaels, 1988; and Allard, 1988). While all of these contributions have shed new light on the issue, they did not satisfactorily solve the basic modeling problem, which obstinately kept its status as an `intellectual swamp’ (Tullock, 1985). The present contribution is an attempt to point to a way out of this swamp by questioning the appropriateness of the Cournot-Nash solution concept for Tullock’s original problem. Equivalently, we question the modeling device of having rent seekers move simultaneously.

Keywords

Rent Seeker Extended Game Strong Player Weak Player Simultaneous Move Game

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Freiherr Karl Friedrich Hyronymus von Münchhausen (1720–91), renowned German braggart (‘The Baron of Lies’), once told the story that during fighting in Russia he went astray with his horse into a swamp. In acute danger he rescued himself from sinking into mud by grabbing his tuft and pulling himself out. (Raspe, 1785; Bürger, 1786).

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Note

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There does exist a mixed strategy equilibrium for the special limiting case that the highest bid wins with certainty (see Hillman and Samet, 1987, for symmetric valuations and Hillman and Riley, 1989, for an extension including the case of asymmetric valuations).Google Scholar